REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.4149 OF 2007
SMT. B. NARASAMMA …APPELLANT
VERSUS
DEPUTY COMMISSIONER COMMERCIAL
TAXES KARNATAKA & ANR. ...RESPONDENTS
WITH
CIVIL APPEAL NO.4318 OF 2007
CIVIL APPEAL NO.4319 OF 2007
CIVIL APPEAL NO. 7400 OF 2016
(ARISING OUT OF SLP(CIVIL) NO.15253 OF 2015)
CIVIL APPEAL NOS. 7401-7872 OF 2016
(ARISING OUT OF SLP(CIVIL) NOS.18646-19117 OF 2015)
CIVIL APPEAL NOS. 7873-7916 OF 2016
(ARISING OUT OF SLP(CIVIL) NOS.10081-10124 OF 2015)
J U D G M E N T
R.F. Nariman, J.
1. Leave granted in SLP(C) Nos.15253/2015, 18646-19117/2015, 10081-
10124/2015.
2. This group of appeals concerns the rate of taxability of declared
goods – i.e. goods declared to be of special importance under Section 14 of
the Central Sales Tax Act, 1956. The question that has to be answered in
these appeals is whether iron and steel reinforcements of cement concrete
that are used in buildings lose their character as iron and steel at the
point of taxability, that is, at the point of accretion in a works
contract. All these appeals come from the State of Karnataka and can be
divided into two groups – one group relatable to the provisions of the
Karnataka Sales Tax Act, 1957 and post 1.4.2005, appeals that are relatable
to the Karnataka Value Added Tax Act, 2003. The facts in these appeals are
more or less similar. Iron and Steel products are used in the execution of
works contracts for reinforcement of cement, the iron and steel products
becoming part of pillars, beams, roofs, etc. which are all parts of the
ultimate immovable structure that is the building or other structure to be
constructed.
3. Before coming to the submissions of learned counsel for the parties,
it is necessary to first set out the relevant provisions of the
Constitution, the Central Sales Tax Act and the two Karnataka Acts in
question.
4. Article 286(3) of the Constitution reads as follows:-
“Article 286. Restrictions as to imposition of tax on the sale or purchase
of goods
xx xx xx
(3) Any law of a State shall, in so far as it imposes, or authorises the
imposition of,
(a) a tax on the sale or purchase of goods declared by Parliament by law to
be of special importance in inter State trade or commerce; or
(b) a tax on the sale or purchase of goods, being a tax of the nature
referred to in sub clause (b), sub clause (c) or sub clause (d) of clause
29 A of Article 366, be subject to such restrictions and conditions in
regard to the system of levy, rates and other incidents of the tax as
Parliament may by law specify.”
5. Section 14 of the Central Sales Tax Act, insofar as it is relevant to
the present case reads as follows:
“Section-14
Certain goods to be of special importance in inter-State trade or commerce.-
It is hereby declared that the following goods are of special importance
in inter-State trade or commerce:-
(iv) iron and steel, that is to say,-
[pig iron, sponge iron and] cast iron including [ingot moulds, bottom
plates], iron scrap, cost iron scrap, runner scrap and iron skull scrap;
Steel semis (ingots, slabs, blooms and billets of all qualities, shapes and
sizes);
Skelp bars, tin bars, sheet bars, hoe-bar and sleeper bars;
Steel bars, rounds, rods, squares, flat, octagons and hexagons, plain and
ribbed or twisted, in coil form as well as straight lengths;
steel structurals (angles, joists, channels, tees, sheet piling sections, Z-
sections or any other rolled sections);
sheets, hoops, strips and skelp, both black and galvanized, hot and cold
rolled plain and corrugated, in all qualities, in straight lengths and in
coil form, as rolled and in riveted condition;
Plates both plain and chequered in all qualities;
Discs, rings, forgings and steel castings;
Tools, alloy and special steels of any of the above categories;
Steel melting scrap in all forms including steel skull, turnings and
borings;
Steel tubes, both welded and seamless, of all diameters and lengths
including tube fittings;
Tin-plates, both hot dipped and electrolytic and tin free plates;
Fist plate bars, bearing plate bars, crossing sleeper bars, fish plates,
bearing plates, crossing sleepers and pressed steel sleepers--heavy and
light crane rails;
Wheels, tyres, axles and wheels sets;
Wire rods and wires—rolled, drawn, galvanized, aluminized, tinned or coated
such as by copper;
Defectives, rejects, cuttings, or end pieces of any of the above
categories;]
Section 15
Restrictions and conditions in regard to tax on sale or purchase of
declared goods within a State.
Every sales tax law of a State shall, in so far as it imposes or authorizes
the imposition of a tax on the sale or purchase of declared goods, be
subject to the following restrictions and conditions, namely:
The tax payable under that law in respect of any sale or purchase of such
goods inside the State shall not exceed [five per cent.] of the sale or
purchase price thereof [***];”
6. By the 46th Amendment of the Constitution, Article 366 (29A) was
added, by which it became possible by a deeming fiction to tax sale of
goods involved in a works contract. Declared goods were taxable under
Section 5(4) of the Act, which is set out hereunder:
“Section 5(4)
Notwithstanding anything contained in sub-section (1) or Section 5-B or
Section 5-C a tax under this Act shall be levied in respect of the sale or
purchase of any of the declared goods mentioned in column (2) of the Fourth
Schedule at the rate and only at the point specified in the corresponding
entries of columns (4) and (3) of the said Schedule on the dealer liable to
tax under this Act on his taxable turnover of sales or purchase in each
year relating to such goods:”
The Karnataka Sales Tax Act was amended to tax goods involved in works
contracts. Taking advantage of the constitutional amendment, Section 5-B
was inserted in the Karnataka Sales Tax Act, 1957. This Section reads as
follows:-
“Section 5-B: Levy of tax on transfer of property in goods (whether as
goods or in some other forms) involved in the execution of works contracts.
Notwithstanding anything contained in sub-section (1) or sub-section (3) or
sub-section (3-C) of Section 5, but subject to sub-section (4), (5) or (6)
of the said Section, every dealer shall pay for each year, a tax under this
Act on his taxable turnover of transfer of property in goods (whether as
goods or in some other form) involved in the execution of works contract
mentioned in column (2) of the Sixth Schedule at the rates specified in the
corresponding entries in column (3) of the said Schedule.”
7. The Fourth Schedule of the said Act, which deals with declared goods
in respect of which a single point tax is leviable under Section 5(4) reads
as follows:
“Act 3 of 1983 (From 1-11-1982)
Sl No Description of the Point of levy Period Rate
Goods for which of tax
applicable
1 2 3 4 5
2. “Iron and steel, that is to say,-”
[(a)] (i) pig iron and cast iron including ingot moulds, bottom
plates -do- From 1-11-82 4%
(ii) steel semis (ingots,
slabs, blooms and billets
of all qualities, shapes
and sizes) -do- From 15-7-75
4%
(iii) skelp bars, tin bars, sheet bars, hoe-bars and sleeper bars;
(iv) steel bars (rounds, rods, squares, flats, octagon and hexagons, plain
and ribbed or twisted, in coil form as well as straight lengths);
(v) steel structurals (angles, joists, channels, tees, sheet piling
sections, Z sections or any other rolled sections);
(vi) sheets, hoops, strips and skelp, both black and galvanized, hot and
cold rolled, plain and corrugated, in all qualities, in straight lengths
and in coil form, as rolled and in riveted condition;
(vii) plates both plain and chequered in all qualities;
(viii) discs, rings, forgings and steel castings; sales by the first
or the earliest of the successive dealers in the state liable to tax under
this Act.
(ix) tool, alloy and special steels of any of the above categories;
Act 30 of 1975 (15-7-75 to 31-10-82)
(x) steel melting scrap in -do- 15.7.75 to 4%
All forms including steel 31.10.82
skull turnings and borings;
8. Similarly, the Sixth Schedule, which is to be read with Section 5-B,
insofar as it is relevant, reads as under:-
Sl. No. Description of works period for which
Rate of
Contact applicable
Tax
1 2 3
4
6. Civil works like construction 1-4-86 to 31-3-95
Five per cent
of building, bridges, roads, etc. 1-4-95 to 31-3-91
Eight per cent
9. Post 1.4.2005, the Karnataka Value Added Tax Act, 2003, taxed
declared goods and works contracts generally as follows:-
Section 4 - Liability to tax and rates thereof.
Every dealer who is or is required to be registered as specified in
Sections 22 and 24, shall be liable to pay tax, on his taxable turnover,
(a) in respect of goods mentioned in,-
(i) Second Schedule, at the rate of one per cent,
(ii) Third Schedule, at the rate of four per cent in respect of goods
specified in serial number 30 and five per cent in respect of other goods,
and
(iii) Fourth Schedule, at the rate of twenty per cent.
(b) in respect of.-
(i) cigarettes, cigars, gutkha and other manufactured tobacco at the rate
of fifteen per cent;
(ii) other goods at the rate of thirteen and one half per cent.
(c) in respect of transfer of property in goods (whether as goods or in
some other form) involved in the execution of works contract specified in
column (2) of the Sixth Schedule, subject to Sections 14 and 15 of the
Central Sales Tax Act, 1956 (Central Act 74 of 1956), at the rates
specified in the corresponding entries in column (3) of the said Schedule.
Third Schedule:
30. Declared goods as specified in Section 14 of the Central Sales Tax
Act, 1956 (Central Act 74 of 1956)
Sixth Schedule:
|23. |All other works contracts not |Fourteen and |
| |specified in any of the above |one half per |
| |categories including composite|cent |
| |contracts with one or more of | |
| |The above categories Fourteen | |
| |and one half per cent | |
10. We have in the main to deal with the impugned judgment dated 1.9.2006
in Civil Appeal No.4318 of 2007, and judgment dated 12.8.2004 in Civil
Appeal No. 4149 of 2007 in favour of Revenue, and a detailed impugned
judgment which is challenged by the State of Karnataka dated 10.12.2013 in
State of Karnataka and etc. etc. v. M/s. Reddy Structures Pvt. Ltd. and
etc. etc. in Civil Appeals arising out of SLP (Civil) Nos.18646-19117/2015.
11. Shri N. Venkatraman led the arguments on behalf of the assessees,
after whom Shri S.K. Bagaria, Shri K.V. Viswanathan, and some others
followed. According to learned counsel, the present matter is concluded by
two judgments of this Court, namely, Builders' Assn. of India v. Union of
India, (1989) 2 SCC 645, and Gannon Dunkerley and Co. v. State of
Rajasthan, (1993) 1 SCC 364. The detailed judgment dated 10.12.2003
correctly extracts all the relevant passages from the aforesaid judgments
to reach the conclusion that under the Karnataka Value Added Tax Act, 2003,
the iron and steel products that are reinforced for cement concrete used in
buildings and structures, remains exactly the same goods at the point of
taxability – that is, the point of accretion, and that mere cutting into
different shapes and bending does not make these items lose their identity
as declared goods. Therefore, according to learned counsel, only tax at
the rate of 4% can be levied, and not the higher rate levied in respect of
civil construction works generally. Other learned counsel more or less
argued along the same lines as Shri N. Venkatraman, only adding that it
cannot be said that the identity of the iron and steel goods had changed at
the point of taxability, and they cited several judgments to show that mere
cutting and shaping of these products would not amount to “manufacture” and
hence the very goods that were declared goods alone were taxable at the
rate of 4%, both under the Karnataka Sales Tax Act as well as the Karnataka
Value Added Tax Act, 2003.
12. Shri K.N. Bhat, learned senior advocate appearing on behalf of the
State, relied strongly on State of Tamil Nadu v. M/s. Pyare Lal Malhotra
and Others, (1976) 1 SCC 834, in order to buttress his submission that the
iron and steel products did not continue as iron and steel products but
somehow became different goods at the point of accretion and that,
therefore, they could be taxed at the higher rate applicable to civil
constructions generally. He did not dispute the law laid down in the two
Supreme Court judgments cited by Shri N. Venkatraman, and very fairly
submitted that if the iron and steel products continued as declared goods
then even though they were in a works contract they were subject to the
drill of Section 15 of the Central Sales Tax Act, and would therefore be
chargeable at 4% if it were found that the said products continue to remain
the same.
13. Having heard learned counsel for the parties, we are of the opinion
that Shri N. Venkatraman is right. The matter is no longer res integra.
Two important propositions emerge on a conjoint reading of Builders
Association and M/s. Gannon Dunkerley (supra). First, that works contracts
that are liable to be taxed after the 46th Constitution Amendment are
subject to the drill of Article 286(3) read with Section 15 of the Central
Sales Tax Act, namely, that they are chargeable at a single point and at a
rate not exceeding 4% at the relevant time. Further, the point at which
these iron and steel products are taxable is the point of accretion, that
is, the point of incorporation into the building or structure.
14. The relevant paragraphs from these two decisions, therefore, need to
be set out. In Builders Association (supra), this Court held:
“We are of the view that all transfers, deliveries and supplies of goods
referred to in clauses (a) to (f) of clause (29-A) of Article 366 of the
Constitution are subject to the restrictions and conditions mentioned in
clause (1), clause (2) and sub-clause (a) of clause (3) of Article 286 of
the Constitution and the transfers and deliveries that take place under sub-
clauses (b), (c) and (d) of clause (29-A) of Article 366 of the
Constitution are subject to an additional restriction mentioned in sub-
clause (b) of Article 286(3) of the Constitution. [para 32]
In Benjamin's Sale of Goods (3rd Edn.) in para 43 at p. 36 it is stated
thus:
“Chattel to be affixed to land or another chattel.—Where work is to be done
on the land of the employer or on a chattel belonging to him, which
involves the use or affixing of materials belonging to the person employed,
the contract will ordinarily be one for work and materials, the property in
the latter passing to the employer by accession and not under any contract
of sale. Sometimes, however, there may instead be a sale of an article with
an additional and subsidiary agreement to affix it. The property then
passes before the article is affixed, by virtue of the contract of sale
itself or an appropriation made under it.”
In view of the foregoing statements with regard to the passing of the
property in goods which are involved in works contract and the legal
fiction created by clause (29-A) of Article 366 of the Constitution it is
difficult to agree with the contention of the States that the properties
that are transferred to the owner in the execution of a works contract are
not the goods involved in the execution of the works contract, but a
conglomerate, that is the entire building that is actually constructed.
After the 46th Amendment it is not possible to accede to the plea of the
States that what is transferred in a works contract is the right in the
immovable property.
The 46th Amendment does no more than making it possible for the States to
levy sales tax on the price of goods and materials used in works contracts
as if there was a sale of such goods and materials.
We are surprised at the attitude of the States which have put forward the
plea that on the passing of the 46th Amendment the Constitution had
conferred on the States a larger freedom than what they had before in
regard to their power to levy sales tax under entry 54 of the State List.
The 46th Amendment does no more than making it possible for the States to
levy sales tax on the price of goods and materials used in works contracts
as if there was a sale of such goods and materials. We do not accept the
argument that sub-clause (b) of Article 366(29-A) should be read as being
equivalent to a separate entry in List II of the Seventh Schedule to the
Constitution enabling the States to levy tax on sales and purchases
independent of entry 54 thereof. As the Constitution exists today the power
of the States to levy taxes on sales and purchases of goods including the
“deemed” sales and purchases of goods under clause (29-A) of Article 366 is
to be found only in entry 54 and not outside it. We may recapitulate here
the observations of the Constitution Bench in the case of Bengal Immunity
Company Ltd. [AIR 1955 SC 661 : (1955) 2 SCR 603 : (1955) 6 STC 446] in
which this Court has held that the operative provisions of the several
parts of Article 286 which imposes restrictions on the levy of sales tax by
the States are intended to deal with different topics and one could not be
projected or read into another and each one of them has to be obeyed while
any sale or purchase is taxed under entry 54 of the State List.
We, therefore, declare that sales tax laws passed by the legislatures of
States levying taxes on the transfer of property in goods (whether as goods
or in some other form) involved in the execution of a works contract are
subject to the restrictions and conditions mentioned in each clause or sub-
clause of Article 286 of the Constitution. We, however, make it clear that
the cases argued before and considered by us relate to one specie of the
generic concept of “works contracts”. The case-book is full of the
illustrations of the infinite variety of the manifestation of “works
contracts”. Whatever might be the situational differences of individual
cases, the constitutional limitations on the taxing power of the State as
are applicable to “works contracts” represented by “building contracts” in
the context of the expanded concept of “tax on the sale or purchase of
goods” as constitutionally defined under Article 366(29-A), would equally
apply to other species of “works contracts” with the requisite situational
modifications.” (Paras 38-41)
In M/s. Gannon Dunkerley (supra), this Court held:
“Apart from the limitations referred to above which curtail the ambit of
the legislative competence of the State Legislatures, there is clause (3)
of Article 286 which enables Parliament to make a law placing restrictions
and conditions on the exercise of the legislative power of the State under
Entry 54 in State List in regard to the system of levy, rates and other
incidents of tax. Such a law may be in relation to (a) goods declared by
Parliament by law to be of special importance in inter-State trade or
commerce, or (b) to taxes of the nature referred to in sub-clauses (b), (c)
and (d) of clause (29-A) of Article 366. When such a law is enacted by
Parliament the legislative power of the States under Entry 54 in State List
has to be exercised subject to the restrictions and conditions specified in
that law. In exercise of the power conferred by Article 286(3)(a)
Parliament has enacted Sections 14 and 15 of the Central Sales Tax Act,
1956. No law has, however, been made by Parliament in exercise of its power
under Article 286(3)(b).
For the same reasons Sections 14 and 15 of the Central Sales Tax Act would
also be applicable to the deemed sales resulting from transfer of property
in goods involved in the execution of a works contract and the legislative
power under Entry 54 in State List will have to be exercised subject to the
restrictions and conditions prescribed in the said provisions in respect of
goods that have been declared to be of special importance in inter-State
trade or commerce.
So also it is not permissible for the State Legislature to impose a tax on
goods declared to be of special importance in inter-State trade or commerce
under Section 14 of the Central Sales Tax Act except in accordance with the
restrictions and conditions contained in Section 15 of the Central Sales
Tax Act.
Since the taxable event is the transfer of property in goods involved in
the execution of a works contract and the said transfer of property in such
goods takes place when the goods are incorporated in the works, the value
of the goods which can constitute the measure for the levy of the tax has
to be the value of the goods at the time of incorporation of the goods in
the works and not the cost of acquisition of the goods by the contractor.
We are also unable to accept the contention urged on behalf of the States
that in addition to the value of the goods involved in the execution of the
works contract the cost of incorporation of the goods in the works can be
included in the measure for levy of tax. Incorporation of the goods in the
works forms part of the contract relating to work and labour which is
distinct from the contract for transfer of property in goods and,
therefore, the cost of incorporation of the goods in the works cannot be
made a part of the measure for levy of tax contemplated by Article 366(29-
A)(b).” [paras 31, 37, 41 and 45]
15. At this juncture, it is important to note the fact situation in a
typical case before us. The Karnataka Appellate Tribunal in an order dated
18.10.2010 in Civil Appeals arising out of SLP(C) Nos. 18646-19117 of 2015
narrates the factual position thus:
“Different types of steel bars/ rods of different diameters are used as
reinforcement (like TMT bars, CTD bars etc). The reinforcement bars/ rods
need to be bent at the ends in a particular fashion to withstand the
bending moments and flexural shear. The main reinforcement bars/ rods have
to be placed parallely along the direction of the longer span. The
diameters of such main reinforcement rods/bars and the distance between any
two main reinforcement bars/rods is calculated depending on the required
loads to be carried by the reinforced cement concrete structure to be built
based on various engineering parameters. At right angles to the main
reinforcement bas/rods, distribution bars/rods of appropriate lesser
diameters are placed and the intersections between the distribution
bars/rods and main reinforcement bars/rods are tied together with binding
wire. The tying is not for the purposes of fabrication but is to see that
the iron bars or rods are not displaced during the course of concreting
from the assigned positions as per the drawings. Welding of longitudinal
main bars and transverse distribution bars is not done. In fact, welding
is contra-indicated because it imparts too much rigidity to the
reinforcement which hampers the capacity of the roof structure to oscillate
or bend to compensate varying loads on the structure besides welding
reduces the cross section of the bars/ rods weakening their tensile
strength. The reinforcements are placed and tied together in appropriate
locations in accordance with the detailed principles and drawings found in
standard bar bending schedules which lay down the exact parameters of
interspaces between bars/ rods, the required diameters of the steel
reinforcement bars/ rods and contain the required engineering drawings for
placement of bars in a particular manner. The placement of reinforcement
bars/ rods for different structures is done under the supervision of
qualified bar tenders and site engineers who are well versed with the
engineering aspects related to steel reinforcement for creating reinforced
cement concrete of desired load bearing capacities.
The appellant company has submitted general photographs showing the
progress of the work of placement and binding of reinforcement bars/ rods
at its work sites. The said photographs also establish the correctness of
the aforesaid findings relating to placement and binding together of steel
reinforcement bars/ rods before such bars/ rods are embedded in cement
concrete mixtures. In another case in STA No.1328/2008 decided by this
Tribunal on 10.2.2009 (in the case of Sri J. Bhaskar Rao) which is relied
on by the appellant, in the agreement between the Government of Karnataka,
Minor Irrigation Department and the said appellant (who was a civil
contractor engaged in the civil construction activity), specification for
placement and binding together of reinforcement bars/ rods were stipulated
by the Government of Karnataka as follows:
“Reinforcing steel shall conform accurately to the dimensions given in the
bar bending schedules shown on the relevant drawings. Bars shall be bent
cold to the specific shape and dimensions or as directed by the Engineer in-
charge using a proper bar bender, operated by hand or power to attain
proper radii of bends.”
“PLACING OF REINFORCEMENTS:
All reinforcement bars shall be accurately placed in exact position
shown on the drawings and shall be securely held in position during placing
of concrete by annealed binding wire not less than 1mm. in size and
conforming to IS;280, and by using stays, blocks or metal chairs, spacers,
metal hangers, supporting wires or other approved devices at sufficiently
close intervals. Bars will not be allowed to end between supports not
displaced during concreting or any other operation over the work …. As far
as possible, bars of full length shall be used. In case this is not
possible, overlapping bars shall not touch each other, but be kept apart by
25mm, or 1 (1/4) times the maximum size of the coarse aggregate whichever
is greater, by concrete between them. Where not feasible, overlapping bars
shall be bound with annealed steel wire, not less than, 1mm. thickness
twisted tight. The overlaps shall be staggered for different bars and
located at points along the span where neither shear nor bending moment is
maximum.”
The above specification which are standard for all civil construction
works also confirms the correctness of the findings recorded by us supra.
Welding of bars/ rods reduces their cross section and to that extent
decreases the tensile strength of the reinforcement bars/ rods defeating
the very purpose of steel reinforcement in cement concrete. When bars/
rods are just joined together loosely by the use of binding wires, the
elasticity of the steel bar/ rod is in no way hampered and each
reinforcement bar/ rod acts independently. By the combined action of the
main reinforcement bars/ rods and the distribution bars/ rods, the
reinforced cement structures like roofs act as a rigid diaphragm whose
elements displace equally in the direction of the applied in-plane loads.
From the above discussion it is clear that largely in building
construction works, no pre-fabrication of any steel structure is done
before embedding them in cement concrete mixture to form reinforced cement
concrete structures. The findings of the lower authorities to the contrary
effect in the cases on hand are entirely opposed to facts.
The only process to which the steel reinforcement rods/ bars are
subjected to before being embedded with cement concrete mixture is bending
at its ends after cutting of steel rods/ bars to the required size and
tying them at the intersections with binding wire. None of these processes
constitute a manufacturing process and no new commodity is produced before
incorporation into the works.”
16. Given this factual scenario, Shri K.N. Bhat referred to the judgment
in State of Tamil Nadu v. M/s. Pyare Lal Malhotra and Others, (1976) 1 SCC
834, and relied on paragraphs 9 and 10 of this judgment which read as
follows:
“If the object was to make iron and steel taxable as a substance, the entry
could have been: “Goods of Iron and Steel”. Perhaps even this would not
have been clear enough. The entry, to clearly have that meaning, would have
to be: “Iron and Steel irrespective of change of form or shape or character
of goods made out of them”. This is the very unusual meaning which the
respondents would like us to adopt. If that was the meaning, sales tax law
itself would undergo a change from being a law which normally taxes sales
of “goods” to a law which taxes sales of substances, out of which goods are
made. We, however, prefer the more natural and normal interpretation which
follows plainly from the fact of separate specification and numbering of
each item. This means that each item so specified forms a separate species
for each series of sales although they may all belong to the genus: “Iron
and Steel”. Hence, if iron and steel “plates” are melted and converted into
“wire” and then sold in the market, such wire would only be taxable once so
long as it retains its identity as a commercial goods belonging to the
category “wire” made of either iron or steel. The mere fact that the
substance or raw material out of which it is made has also been taxed in
some other form, when it was sold as a separate commercial commodity, would
make no difference for purposes of the law of sales tax. The object appears
to us to be to tax sales of goods of each variety and not the sale of the
substance out of which they are made.
As we all know, sales tax law is intended to tax sales of different
commercial commodities and not to tax the production or manufacture of
particular substances out of which these commodities may have been made. As
soon as separate commercial commodities emerge or come into existence, they
become separately taxable goods or entities for purposes of sales tax.
Where commercial goods, without change of their identity as such goods, are
merely subjected to some processing or finishing or are merely joined
together, they may remain commercially the goods which cannot be taxed
again, in a series of sales, so long as they retain their identity as goods
of a particular type.” [paras 9 and 10]
17. Given the fact situation in these appeals, it is obvious that
paragraph 10 of this judgment squarely covers the case against the State,
where, commercial goods without change of their identity as such, are
merely subject to some processing or finishing, or are merely joined
together, and therefore remain commercially the same goods which cannot be
taxed again, given the rigor of Section 15 of the Central Sales Tax Act.
We fail to see how the aforesaid judgment can further carry the case of the
revenue.
18. We may note that in Civil Appeal No.4318 of 2007, Larsen & Toubro
Ltd. v. State of Karnataka & Another, the Appellate Tribunal had passed an
order dated 11.1.2002 in which it decided the case against the assessee on
the ground that since the iron and steel products went into cement
concrete, they changed form, and since they changed form, they were no
longer declared goods and could be taxed without the constraints mentioned
in Section 15 of the Central Sales Tax Act. A Sales Tax Revision Petition
filed before the High Court yielded an order dated 14.6.2007 by which the
assessee was sent back to the Appellate Tribunal for rectification. This
rectification petition was dismissed by an order dated 30.11.2005. A Sales
Tax Revision Petition was thereafter filed against both orders, namely,
11.1.2002 and 30.11.2005. The High Court, in the impugned judgment dated
1.9.2006, unfortunately adverted only to the rectification order dated
30.11.2005 and not to the original order of 11.1.2002 and thus dismissed
the revision petition stating that no question of law arose. Ordinarily,
we would have set aside the judgment and remanded the matter back to the
High Court to determine the matter on merits, but at this point of time we
find this would not serve any purpose. Instead, it is enough to set aside
both the judgments impugned by the assessees, dated 1.9.2006 and 12.8.2004,
in light of the law laid down in Builders Association and M/s. Gannon
Dunkerley (supra), and declare that the declared goods in question can only
be taxed at the rate of 4%.
19. In the State Appeals, we find that the lead impugned judgment in
Civil Appeals arising out of SLP(C) Nos.18646-19117 of 2015 dated
10.12.2013 is an exhaustive judgment which has considered not only the
facts in great detail but also the law laid down by the Supreme Court. We
affirm the said judgment and dismiss the appeals of the State of Karnataka.
Civil Appeal No.4319 of 2007
M/s. Ananth Engineering Works v. State of Karnataka
20. This appeal is by the assessee from a judgment dated 26.10.2006
allowing a revision against the Appellate Tribunal’s order dated 19.1.2006.
In this appeal, we are concerned with Rule 6(4)(m) of the Karnataka Sales
Tax Rules, 1957.
“Rule 6(4):
6. DETERMINATION OF TOTAL AND TAXABLE TURNOVER:
(1)…….
…….
(4) In determining the table turnover, the amount specified in clause
(a) to (p) shall, subject to the conditions specified therein, be deducted
from the total turnover of a dealer as determined under clauses (a) to (e)
of sub-Rule (1).
(a)…..
(b)….
…..
(m) In the case of works contract specified in Serial Numbers
1,2,3,4,5,7,8,9,10,11,12,17,26,27,35,36,40 and 42 of the Sixth Schedule;
(i) all amounts received or receivable in respect of goods other than
the goods taxable under sub-section (1-A) or (1-B) or Section 5 which are
purchased form registered dealers liable to pay tax under the Act and used
in the execution of works contract in the same form in which such goods are
purchased.
(ii) ……
…….EXPLANATION-III For the purpose of sub-rule (4), the expression ‘in the
same form’ used in sub-clause (i) of clause (m) shall not include such
goods which, after being purchased, are either consumed or used in the
manufacture of other goods which in turn are used in the execution of works
contract.”
21. On facts in this case, it has been found that the appellant is
engaged in works contracts of fabrication and creation of doors, window
frames, grills, etc. in which they claimed exemption for iron and steel
goods that went into the creation of these items, after which the said
doors, window frames, grills, etc. were fitted into buildings and other
structures. On facts, therefore, we find that the High Court’s judgment is
correct and does not need to be interfered with inasmuch as the iron and
steel goods, after being purchased, are used in the manufacture of other
goods, namely, doors, window frames, grills, etc. which in turn are used in
the execution of works contracts and are therefore not exempt from tax.
22. The appeal of the assessee is therefore dismissed.
…..………………J.
(A.K. Sikri)
…..………………J.
(R.F. Nariman)
New Delhi;
August 11, 2016
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.4149 OF 2007
SMT. B. NARASAMMA …APPELLANT
VERSUS
DEPUTY COMMISSIONER COMMERCIAL
TAXES KARNATAKA & ANR. ...RESPONDENTS
WITH
CIVIL APPEAL NO.4318 OF 2007
CIVIL APPEAL NO.4319 OF 2007
CIVIL APPEAL NO. 7400 OF 2016
(ARISING OUT OF SLP(CIVIL) NO.15253 OF 2015)
CIVIL APPEAL NOS. 7401-7872 OF 2016
(ARISING OUT OF SLP(CIVIL) NOS.18646-19117 OF 2015)
CIVIL APPEAL NOS. 7873-7916 OF 2016
(ARISING OUT OF SLP(CIVIL) NOS.10081-10124 OF 2015)
J U D G M E N T
R.F. Nariman, J.
1. Leave granted in SLP(C) Nos.15253/2015, 18646-19117/2015, 10081-
10124/2015.
2. This group of appeals concerns the rate of taxability of declared
goods – i.e. goods declared to be of special importance under Section 14 of
the Central Sales Tax Act, 1956. The question that has to be answered in
these appeals is whether iron and steel reinforcements of cement concrete
that are used in buildings lose their character as iron and steel at the
point of taxability, that is, at the point of accretion in a works
contract. All these appeals come from the State of Karnataka and can be
divided into two groups – one group relatable to the provisions of the
Karnataka Sales Tax Act, 1957 and post 1.4.2005, appeals that are relatable
to the Karnataka Value Added Tax Act, 2003. The facts in these appeals are
more or less similar. Iron and Steel products are used in the execution of
works contracts for reinforcement of cement, the iron and steel products
becoming part of pillars, beams, roofs, etc. which are all parts of the
ultimate immovable structure that is the building or other structure to be
constructed.
3. Before coming to the submissions of learned counsel for the parties,
it is necessary to first set out the relevant provisions of the
Constitution, the Central Sales Tax Act and the two Karnataka Acts in
question.
4. Article 286(3) of the Constitution reads as follows:-
“Article 286. Restrictions as to imposition of tax on the sale or purchase
of goods
xx xx xx
(3) Any law of a State shall, in so far as it imposes, or authorises the
imposition of,
(a) a tax on the sale or purchase of goods declared by Parliament by law to
be of special importance in inter State trade or commerce; or
(b) a tax on the sale or purchase of goods, being a tax of the nature
referred to in sub clause (b), sub clause (c) or sub clause (d) of clause
29 A of Article 366, be subject to such restrictions and conditions in
regard to the system of levy, rates and other incidents of the tax as
Parliament may by law specify.”
5. Section 14 of the Central Sales Tax Act, insofar as it is relevant to
the present case reads as follows:
“Section-14
Certain goods to be of special importance in inter-State trade or commerce.-
It is hereby declared that the following goods are of special importance
in inter-State trade or commerce:-
(iv) iron and steel, that is to say,-
[pig iron, sponge iron and] cast iron including [ingot moulds, bottom
plates], iron scrap, cost iron scrap, runner scrap and iron skull scrap;
Steel semis (ingots, slabs, blooms and billets of all qualities, shapes and
sizes);
Skelp bars, tin bars, sheet bars, hoe-bar and sleeper bars;
Steel bars, rounds, rods, squares, flat, octagons and hexagons, plain and
ribbed or twisted, in coil form as well as straight lengths;
steel structurals (angles, joists, channels, tees, sheet piling sections, Z-
sections or any other rolled sections);
sheets, hoops, strips and skelp, both black and galvanized, hot and cold
rolled plain and corrugated, in all qualities, in straight lengths and in
coil form, as rolled and in riveted condition;
Plates both plain and chequered in all qualities;
Discs, rings, forgings and steel castings;
Tools, alloy and special steels of any of the above categories;
Steel melting scrap in all forms including steel skull, turnings and
borings;
Steel tubes, both welded and seamless, of all diameters and lengths
including tube fittings;
Tin-plates, both hot dipped and electrolytic and tin free plates;
Fist plate bars, bearing plate bars, crossing sleeper bars, fish plates,
bearing plates, crossing sleepers and pressed steel sleepers--heavy and
light crane rails;
Wheels, tyres, axles and wheels sets;
Wire rods and wires—rolled, drawn, galvanized, aluminized, tinned or coated
such as by copper;
Defectives, rejects, cuttings, or end pieces of any of the above
categories;]
Section 15
Restrictions and conditions in regard to tax on sale or purchase of
declared goods within a State.
Every sales tax law of a State shall, in so far as it imposes or authorizes
the imposition of a tax on the sale or purchase of declared goods, be
subject to the following restrictions and conditions, namely:
The tax payable under that law in respect of any sale or purchase of such
goods inside the State shall not exceed [five per cent.] of the sale or
purchase price thereof [***];”
6. By the 46th Amendment of the Constitution, Article 366 (29A) was
added, by which it became possible by a deeming fiction to tax sale of
goods involved in a works contract. Declared goods were taxable under
Section 5(4) of the Act, which is set out hereunder:
“Section 5(4)
Notwithstanding anything contained in sub-section (1) or Section 5-B or
Section 5-C a tax under this Act shall be levied in respect of the sale or
purchase of any of the declared goods mentioned in column (2) of the Fourth
Schedule at the rate and only at the point specified in the corresponding
entries of columns (4) and (3) of the said Schedule on the dealer liable to
tax under this Act on his taxable turnover of sales or purchase in each
year relating to such goods:”
The Karnataka Sales Tax Act was amended to tax goods involved in works
contracts. Taking advantage of the constitutional amendment, Section 5-B
was inserted in the Karnataka Sales Tax Act, 1957. This Section reads as
follows:-
“Section 5-B: Levy of tax on transfer of property in goods (whether as
goods or in some other forms) involved in the execution of works contracts.
Notwithstanding anything contained in sub-section (1) or sub-section (3) or
sub-section (3-C) of Section 5, but subject to sub-section (4), (5) or (6)
of the said Section, every dealer shall pay for each year, a tax under this
Act on his taxable turnover of transfer of property in goods (whether as
goods or in some other form) involved in the execution of works contract
mentioned in column (2) of the Sixth Schedule at the rates specified in the
corresponding entries in column (3) of the said Schedule.”
7. The Fourth Schedule of the said Act, which deals with declared goods
in respect of which a single point tax is leviable under Section 5(4) reads
as follows:
“Act 3 of 1983 (From 1-11-1982)
Sl No Description of the Point of levy Period Rate
Goods for which of tax
applicable
1 2 3 4 5
2. “Iron and steel, that is to say,-”
[(a)] (i) pig iron and cast iron including ingot moulds, bottom
plates -do- From 1-11-82 4%
(ii) steel semis (ingots,
slabs, blooms and billets
of all qualities, shapes
and sizes) -do- From 15-7-75
4%
(iii) skelp bars, tin bars, sheet bars, hoe-bars and sleeper bars;
(iv) steel bars (rounds, rods, squares, flats, octagon and hexagons, plain
and ribbed or twisted, in coil form as well as straight lengths);
(v) steel structurals (angles, joists, channels, tees, sheet piling
sections, Z sections or any other rolled sections);
(vi) sheets, hoops, strips and skelp, both black and galvanized, hot and
cold rolled, plain and corrugated, in all qualities, in straight lengths
and in coil form, as rolled and in riveted condition;
(vii) plates both plain and chequered in all qualities;
(viii) discs, rings, forgings and steel castings; sales by the first
or the earliest of the successive dealers in the state liable to tax under
this Act.
(ix) tool, alloy and special steels of any of the above categories;
Act 30 of 1975 (15-7-75 to 31-10-82)
(x) steel melting scrap in -do- 15.7.75 to 4%
All forms including steel 31.10.82
skull turnings and borings;
8. Similarly, the Sixth Schedule, which is to be read with Section 5-B,
insofar as it is relevant, reads as under:-
Sl. No. Description of works period for which
Rate of
Contact applicable
Tax
1 2 3
4
6. Civil works like construction 1-4-86 to 31-3-95
Five per cent
of building, bridges, roads, etc. 1-4-95 to 31-3-91
Eight per cent
9. Post 1.4.2005, the Karnataka Value Added Tax Act, 2003, taxed
declared goods and works contracts generally as follows:-
Section 4 - Liability to tax and rates thereof.
Every dealer who is or is required to be registered as specified in
Sections 22 and 24, shall be liable to pay tax, on his taxable turnover,
(a) in respect of goods mentioned in,-
(i) Second Schedule, at the rate of one per cent,
(ii) Third Schedule, at the rate of four per cent in respect of goods
specified in serial number 30 and five per cent in respect of other goods,
and
(iii) Fourth Schedule, at the rate of twenty per cent.
(b) in respect of.-
(i) cigarettes, cigars, gutkha and other manufactured tobacco at the rate
of fifteen per cent;
(ii) other goods at the rate of thirteen and one half per cent.
(c) in respect of transfer of property in goods (whether as goods or in
some other form) involved in the execution of works contract specified in
column (2) of the Sixth Schedule, subject to Sections 14 and 15 of the
Central Sales Tax Act, 1956 (Central Act 74 of 1956), at the rates
specified in the corresponding entries in column (3) of the said Schedule.
Third Schedule:
30. Declared goods as specified in Section 14 of the Central Sales Tax
Act, 1956 (Central Act 74 of 1956)
Sixth Schedule:
|23. |All other works contracts not |Fourteen and |
| |specified in any of the above |one half per |
| |categories including composite|cent |
| |contracts with one or more of | |
| |The above categories Fourteen | |
| |and one half per cent | |
10. We have in the main to deal with the impugned judgment dated 1.9.2006
in Civil Appeal No.4318 of 2007, and judgment dated 12.8.2004 in Civil
Appeal No. 4149 of 2007 in favour of Revenue, and a detailed impugned
judgment which is challenged by the State of Karnataka dated 10.12.2013 in
State of Karnataka and etc. etc. v. M/s. Reddy Structures Pvt. Ltd. and
etc. etc. in Civil Appeals arising out of SLP (Civil) Nos.18646-19117/2015.
11. Shri N. Venkatraman led the arguments on behalf of the assessees,
after whom Shri S.K. Bagaria, Shri K.V. Viswanathan, and some others
followed. According to learned counsel, the present matter is concluded by
two judgments of this Court, namely, Builders' Assn. of India v. Union of
India, (1989) 2 SCC 645, and Gannon Dunkerley and Co. v. State of
Rajasthan, (1993) 1 SCC 364. The detailed judgment dated 10.12.2003
correctly extracts all the relevant passages from the aforesaid judgments
to reach the conclusion that under the Karnataka Value Added Tax Act, 2003,
the iron and steel products that are reinforced for cement concrete used in
buildings and structures, remains exactly the same goods at the point of
taxability – that is, the point of accretion, and that mere cutting into
different shapes and bending does not make these items lose their identity
as declared goods. Therefore, according to learned counsel, only tax at
the rate of 4% can be levied, and not the higher rate levied in respect of
civil construction works generally. Other learned counsel more or less
argued along the same lines as Shri N. Venkatraman, only adding that it
cannot be said that the identity of the iron and steel goods had changed at
the point of taxability, and they cited several judgments to show that mere
cutting and shaping of these products would not amount to “manufacture” and
hence the very goods that were declared goods alone were taxable at the
rate of 4%, both under the Karnataka Sales Tax Act as well as the Karnataka
Value Added Tax Act, 2003.
12. Shri K.N. Bhat, learned senior advocate appearing on behalf of the
State, relied strongly on State of Tamil Nadu v. M/s. Pyare Lal Malhotra
and Others, (1976) 1 SCC 834, in order to buttress his submission that the
iron and steel products did not continue as iron and steel products but
somehow became different goods at the point of accretion and that,
therefore, they could be taxed at the higher rate applicable to civil
constructions generally. He did not dispute the law laid down in the two
Supreme Court judgments cited by Shri N. Venkatraman, and very fairly
submitted that if the iron and steel products continued as declared goods
then even though they were in a works contract they were subject to the
drill of Section 15 of the Central Sales Tax Act, and would therefore be
chargeable at 4% if it were found that the said products continue to remain
the same.
13. Having heard learned counsel for the parties, we are of the opinion
that Shri N. Venkatraman is right. The matter is no longer res integra.
Two important propositions emerge on a conjoint reading of Builders
Association and M/s. Gannon Dunkerley (supra). First, that works contracts
that are liable to be taxed after the 46th Constitution Amendment are
subject to the drill of Article 286(3) read with Section 15 of the Central
Sales Tax Act, namely, that they are chargeable at a single point and at a
rate not exceeding 4% at the relevant time. Further, the point at which
these iron and steel products are taxable is the point of accretion, that
is, the point of incorporation into the building or structure.
14. The relevant paragraphs from these two decisions, therefore, need to
be set out. In Builders Association (supra), this Court held:
“We are of the view that all transfers, deliveries and supplies of goods
referred to in clauses (a) to (f) of clause (29-A) of Article 366 of the
Constitution are subject to the restrictions and conditions mentioned in
clause (1), clause (2) and sub-clause (a) of clause (3) of Article 286 of
the Constitution and the transfers and deliveries that take place under sub-
clauses (b), (c) and (d) of clause (29-A) of Article 366 of the
Constitution are subject to an additional restriction mentioned in sub-
clause (b) of Article 286(3) of the Constitution. [para 32]
In Benjamin's Sale of Goods (3rd Edn.) in para 43 at p. 36 it is stated
thus:
“Chattel to be affixed to land or another chattel.—Where work is to be done
on the land of the employer or on a chattel belonging to him, which
involves the use or affixing of materials belonging to the person employed,
the contract will ordinarily be one for work and materials, the property in
the latter passing to the employer by accession and not under any contract
of sale. Sometimes, however, there may instead be a sale of an article with
an additional and subsidiary agreement to affix it. The property then
passes before the article is affixed, by virtue of the contract of sale
itself or an appropriation made under it.”
In view of the foregoing statements with regard to the passing of the
property in goods which are involved in works contract and the legal
fiction created by clause (29-A) of Article 366 of the Constitution it is
difficult to agree with the contention of the States that the properties
that are transferred to the owner in the execution of a works contract are
not the goods involved in the execution of the works contract, but a
conglomerate, that is the entire building that is actually constructed.
After the 46th Amendment it is not possible to accede to the plea of the
States that what is transferred in a works contract is the right in the
immovable property.
The 46th Amendment does no more than making it possible for the States to
levy sales tax on the price of goods and materials used in works contracts
as if there was a sale of such goods and materials.
We are surprised at the attitude of the States which have put forward the
plea that on the passing of the 46th Amendment the Constitution had
conferred on the States a larger freedom than what they had before in
regard to their power to levy sales tax under entry 54 of the State List.
The 46th Amendment does no more than making it possible for the States to
levy sales tax on the price of goods and materials used in works contracts
as if there was a sale of such goods and materials. We do not accept the
argument that sub-clause (b) of Article 366(29-A) should be read as being
equivalent to a separate entry in List II of the Seventh Schedule to the
Constitution enabling the States to levy tax on sales and purchases
independent of entry 54 thereof. As the Constitution exists today the power
of the States to levy taxes on sales and purchases of goods including the
“deemed” sales and purchases of goods under clause (29-A) of Article 366 is
to be found only in entry 54 and not outside it. We may recapitulate here
the observations of the Constitution Bench in the case of Bengal Immunity
Company Ltd. [AIR 1955 SC 661 : (1955) 2 SCR 603 : (1955) 6 STC 446] in
which this Court has held that the operative provisions of the several
parts of Article 286 which imposes restrictions on the levy of sales tax by
the States are intended to deal with different topics and one could not be
projected or read into another and each one of them has to be obeyed while
any sale or purchase is taxed under entry 54 of the State List.
We, therefore, declare that sales tax laws passed by the legislatures of
States levying taxes on the transfer of property in goods (whether as goods
or in some other form) involved in the execution of a works contract are
subject to the restrictions and conditions mentioned in each clause or sub-
clause of Article 286 of the Constitution. We, however, make it clear that
the cases argued before and considered by us relate to one specie of the
generic concept of “works contracts”. The case-book is full of the
illustrations of the infinite variety of the manifestation of “works
contracts”. Whatever might be the situational differences of individual
cases, the constitutional limitations on the taxing power of the State as
are applicable to “works contracts” represented by “building contracts” in
the context of the expanded concept of “tax on the sale or purchase of
goods” as constitutionally defined under Article 366(29-A), would equally
apply to other species of “works contracts” with the requisite situational
modifications.” (Paras 38-41)
In M/s. Gannon Dunkerley (supra), this Court held:
“Apart from the limitations referred to above which curtail the ambit of
the legislative competence of the State Legislatures, there is clause (3)
of Article 286 which enables Parliament to make a law placing restrictions
and conditions on the exercise of the legislative power of the State under
Entry 54 in State List in regard to the system of levy, rates and other
incidents of tax. Such a law may be in relation to (a) goods declared by
Parliament by law to be of special importance in inter-State trade or
commerce, or (b) to taxes of the nature referred to in sub-clauses (b), (c)
and (d) of clause (29-A) of Article 366. When such a law is enacted by
Parliament the legislative power of the States under Entry 54 in State List
has to be exercised subject to the restrictions and conditions specified in
that law. In exercise of the power conferred by Article 286(3)(a)
Parliament has enacted Sections 14 and 15 of the Central Sales Tax Act,
1956. No law has, however, been made by Parliament in exercise of its power
under Article 286(3)(b).
For the same reasons Sections 14 and 15 of the Central Sales Tax Act would
also be applicable to the deemed sales resulting from transfer of property
in goods involved in the execution of a works contract and the legislative
power under Entry 54 in State List will have to be exercised subject to the
restrictions and conditions prescribed in the said provisions in respect of
goods that have been declared to be of special importance in inter-State
trade or commerce.
So also it is not permissible for the State Legislature to impose a tax on
goods declared to be of special importance in inter-State trade or commerce
under Section 14 of the Central Sales Tax Act except in accordance with the
restrictions and conditions contained in Section 15 of the Central Sales
Tax Act.
Since the taxable event is the transfer of property in goods involved in
the execution of a works contract and the said transfer of property in such
goods takes place when the goods are incorporated in the works, the value
of the goods which can constitute the measure for the levy of the tax has
to be the value of the goods at the time of incorporation of the goods in
the works and not the cost of acquisition of the goods by the contractor.
We are also unable to accept the contention urged on behalf of the States
that in addition to the value of the goods involved in the execution of the
works contract the cost of incorporation of the goods in the works can be
included in the measure for levy of tax. Incorporation of the goods in the
works forms part of the contract relating to work and labour which is
distinct from the contract for transfer of property in goods and,
therefore, the cost of incorporation of the goods in the works cannot be
made a part of the measure for levy of tax contemplated by Article 366(29-
A)(b).” [paras 31, 37, 41 and 45]
15. At this juncture, it is important to note the fact situation in a
typical case before us. The Karnataka Appellate Tribunal in an order dated
18.10.2010 in Civil Appeals arising out of SLP(C) Nos. 18646-19117 of 2015
narrates the factual position thus:
“Different types of steel bars/ rods of different diameters are used as
reinforcement (like TMT bars, CTD bars etc). The reinforcement bars/ rods
need to be bent at the ends in a particular fashion to withstand the
bending moments and flexural shear. The main reinforcement bars/ rods have
to be placed parallely along the direction of the longer span. The
diameters of such main reinforcement rods/bars and the distance between any
two main reinforcement bars/rods is calculated depending on the required
loads to be carried by the reinforced cement concrete structure to be built
based on various engineering parameters. At right angles to the main
reinforcement bas/rods, distribution bars/rods of appropriate lesser
diameters are placed and the intersections between the distribution
bars/rods and main reinforcement bars/rods are tied together with binding
wire. The tying is not for the purposes of fabrication but is to see that
the iron bars or rods are not displaced during the course of concreting
from the assigned positions as per the drawings. Welding of longitudinal
main bars and transverse distribution bars is not done. In fact, welding
is contra-indicated because it imparts too much rigidity to the
reinforcement which hampers the capacity of the roof structure to oscillate
or bend to compensate varying loads on the structure besides welding
reduces the cross section of the bars/ rods weakening their tensile
strength. The reinforcements are placed and tied together in appropriate
locations in accordance with the detailed principles and drawings found in
standard bar bending schedules which lay down the exact parameters of
interspaces between bars/ rods, the required diameters of the steel
reinforcement bars/ rods and contain the required engineering drawings for
placement of bars in a particular manner. The placement of reinforcement
bars/ rods for different structures is done under the supervision of
qualified bar tenders and site engineers who are well versed with the
engineering aspects related to steel reinforcement for creating reinforced
cement concrete of desired load bearing capacities.
The appellant company has submitted general photographs showing the
progress of the work of placement and binding of reinforcement bars/ rods
at its work sites. The said photographs also establish the correctness of
the aforesaid findings relating to placement and binding together of steel
reinforcement bars/ rods before such bars/ rods are embedded in cement
concrete mixtures. In another case in STA No.1328/2008 decided by this
Tribunal on 10.2.2009 (in the case of Sri J. Bhaskar Rao) which is relied
on by the appellant, in the agreement between the Government of Karnataka,
Minor Irrigation Department and the said appellant (who was a civil
contractor engaged in the civil construction activity), specification for
placement and binding together of reinforcement bars/ rods were stipulated
by the Government of Karnataka as follows:
“Reinforcing steel shall conform accurately to the dimensions given in the
bar bending schedules shown on the relevant drawings. Bars shall be bent
cold to the specific shape and dimensions or as directed by the Engineer in-
charge using a proper bar bender, operated by hand or power to attain
proper radii of bends.”
“PLACING OF REINFORCEMENTS:
All reinforcement bars shall be accurately placed in exact position
shown on the drawings and shall be securely held in position during placing
of concrete by annealed binding wire not less than 1mm. in size and
conforming to IS;280, and by using stays, blocks or metal chairs, spacers,
metal hangers, supporting wires or other approved devices at sufficiently
close intervals. Bars will not be allowed to end between supports not
displaced during concreting or any other operation over the work …. As far
as possible, bars of full length shall be used. In case this is not
possible, overlapping bars shall not touch each other, but be kept apart by
25mm, or 1 (1/4) times the maximum size of the coarse aggregate whichever
is greater, by concrete between them. Where not feasible, overlapping bars
shall be bound with annealed steel wire, not less than, 1mm. thickness
twisted tight. The overlaps shall be staggered for different bars and
located at points along the span where neither shear nor bending moment is
maximum.”
The above specification which are standard for all civil construction
works also confirms the correctness of the findings recorded by us supra.
Welding of bars/ rods reduces their cross section and to that extent
decreases the tensile strength of the reinforcement bars/ rods defeating
the very purpose of steel reinforcement in cement concrete. When bars/
rods are just joined together loosely by the use of binding wires, the
elasticity of the steel bar/ rod is in no way hampered and each
reinforcement bar/ rod acts independently. By the combined action of the
main reinforcement bars/ rods and the distribution bars/ rods, the
reinforced cement structures like roofs act as a rigid diaphragm whose
elements displace equally in the direction of the applied in-plane loads.
From the above discussion it is clear that largely in building
construction works, no pre-fabrication of any steel structure is done
before embedding them in cement concrete mixture to form reinforced cement
concrete structures. The findings of the lower authorities to the contrary
effect in the cases on hand are entirely opposed to facts.
The only process to which the steel reinforcement rods/ bars are
subjected to before being embedded with cement concrete mixture is bending
at its ends after cutting of steel rods/ bars to the required size and
tying them at the intersections with binding wire. None of these processes
constitute a manufacturing process and no new commodity is produced before
incorporation into the works.”
16. Given this factual scenario, Shri K.N. Bhat referred to the judgment
in State of Tamil Nadu v. M/s. Pyare Lal Malhotra and Others, (1976) 1 SCC
834, and relied on paragraphs 9 and 10 of this judgment which read as
follows:
“If the object was to make iron and steel taxable as a substance, the entry
could have been: “Goods of Iron and Steel”. Perhaps even this would not
have been clear enough. The entry, to clearly have that meaning, would have
to be: “Iron and Steel irrespective of change of form or shape or character
of goods made out of them”. This is the very unusual meaning which the
respondents would like us to adopt. If that was the meaning, sales tax law
itself would undergo a change from being a law which normally taxes sales
of “goods” to a law which taxes sales of substances, out of which goods are
made. We, however, prefer the more natural and normal interpretation which
follows plainly from the fact of separate specification and numbering of
each item. This means that each item so specified forms a separate species
for each series of sales although they may all belong to the genus: “Iron
and Steel”. Hence, if iron and steel “plates” are melted and converted into
“wire” and then sold in the market, such wire would only be taxable once so
long as it retains its identity as a commercial goods belonging to the
category “wire” made of either iron or steel. The mere fact that the
substance or raw material out of which it is made has also been taxed in
some other form, when it was sold as a separate commercial commodity, would
make no difference for purposes of the law of sales tax. The object appears
to us to be to tax sales of goods of each variety and not the sale of the
substance out of which they are made.
As we all know, sales tax law is intended to tax sales of different
commercial commodities and not to tax the production or manufacture of
particular substances out of which these commodities may have been made. As
soon as separate commercial commodities emerge or come into existence, they
become separately taxable goods or entities for purposes of sales tax.
Where commercial goods, without change of their identity as such goods, are
merely subjected to some processing or finishing or are merely joined
together, they may remain commercially the goods which cannot be taxed
again, in a series of sales, so long as they retain their identity as goods
of a particular type.” [paras 9 and 10]
17. Given the fact situation in these appeals, it is obvious that
paragraph 10 of this judgment squarely covers the case against the State,
where, commercial goods without change of their identity as such, are
merely subject to some processing or finishing, or are merely joined
together, and therefore remain commercially the same goods which cannot be
taxed again, given the rigor of Section 15 of the Central Sales Tax Act.
We fail to see how the aforesaid judgment can further carry the case of the
revenue.
18. We may note that in Civil Appeal No.4318 of 2007, Larsen & Toubro
Ltd. v. State of Karnataka & Another, the Appellate Tribunal had passed an
order dated 11.1.2002 in which it decided the case against the assessee on
the ground that since the iron and steel products went into cement
concrete, they changed form, and since they changed form, they were no
longer declared goods and could be taxed without the constraints mentioned
in Section 15 of the Central Sales Tax Act. A Sales Tax Revision Petition
filed before the High Court yielded an order dated 14.6.2007 by which the
assessee was sent back to the Appellate Tribunal for rectification. This
rectification petition was dismissed by an order dated 30.11.2005. A Sales
Tax Revision Petition was thereafter filed against both orders, namely,
11.1.2002 and 30.11.2005. The High Court, in the impugned judgment dated
1.9.2006, unfortunately adverted only to the rectification order dated
30.11.2005 and not to the original order of 11.1.2002 and thus dismissed
the revision petition stating that no question of law arose. Ordinarily,
we would have set aside the judgment and remanded the matter back to the
High Court to determine the matter on merits, but at this point of time we
find this would not serve any purpose. Instead, it is enough to set aside
both the judgments impugned by the assessees, dated 1.9.2006 and 12.8.2004,
in light of the law laid down in Builders Association and M/s. Gannon
Dunkerley (supra), and declare that the declared goods in question can only
be taxed at the rate of 4%.
19. In the State Appeals, we find that the lead impugned judgment in
Civil Appeals arising out of SLP(C) Nos.18646-19117 of 2015 dated
10.12.2013 is an exhaustive judgment which has considered not only the
facts in great detail but also the law laid down by the Supreme Court. We
affirm the said judgment and dismiss the appeals of the State of Karnataka.
Civil Appeal No.4319 of 2007
M/s. Ananth Engineering Works v. State of Karnataka
20. This appeal is by the assessee from a judgment dated 26.10.2006
allowing a revision against the Appellate Tribunal’s order dated 19.1.2006.
In this appeal, we are concerned with Rule 6(4)(m) of the Karnataka Sales
Tax Rules, 1957.
“Rule 6(4):
6. DETERMINATION OF TOTAL AND TAXABLE TURNOVER:
(1)…….
…….
(4) In determining the table turnover, the amount specified in clause
(a) to (p) shall, subject to the conditions specified therein, be deducted
from the total turnover of a dealer as determined under clauses (a) to (e)
of sub-Rule (1).
(a)…..
(b)….
…..
(m) In the case of works contract specified in Serial Numbers
1,2,3,4,5,7,8,9,10,11,12,17,26,27,35,36,40 and 42 of the Sixth Schedule;
(i) all amounts received or receivable in respect of goods other than
the goods taxable under sub-section (1-A) or (1-B) or Section 5 which are
purchased form registered dealers liable to pay tax under the Act and used
in the execution of works contract in the same form in which such goods are
purchased.
(ii) ……
…….EXPLANATION-III For the purpose of sub-rule (4), the expression ‘in the
same form’ used in sub-clause (i) of clause (m) shall not include such
goods which, after being purchased, are either consumed or used in the
manufacture of other goods which in turn are used in the execution of works
contract.”
21. On facts in this case, it has been found that the appellant is
engaged in works contracts of fabrication and creation of doors, window
frames, grills, etc. in which they claimed exemption for iron and steel
goods that went into the creation of these items, after which the said
doors, window frames, grills, etc. were fitted into buildings and other
structures. On facts, therefore, we find that the High Court’s judgment is
correct and does not need to be interfered with inasmuch as the iron and
steel goods, after being purchased, are used in the manufacture of other
goods, namely, doors, window frames, grills, etc. which in turn are used in
the execution of works contracts and are therefore not exempt from tax.
22. The appeal of the assessee is therefore dismissed.
…..………………J.
(A.K. Sikri)
…..………………J.
(R.F. Nariman)
New Delhi;
August 11, 2016
